Monday, April 04, 2005

Is tax competition bad?

I am back from my Easter break with a post about tax competition.
While tax rates around the globe continue to be decreasing, high tax countries have been engaged in an aggressive war against low tax-rate countries around the world. They do so by for exmaple forcing low-tax countries to raise their tax rates, particularly on capital and by making it more difficult for savers and investors to move their capital freely around the world to its best use. The European Union and the OECD have been in the forefront of this discussion and battle. The EU Code of Conduct and OECD work on Harmful Tax Competition are good examples of this. The EU Savings Directive which is planned to enter into force in July 2005 also exemplifies this approach to counter tax competition by increasing the information-sharing mechanisms for savings income located in low-tax jurisdictions.
Nevertheless, what needs to be discussed (or seems to be not widely discussed) is why tax competition is bad after all? Is it bad for you? Is it bad for all of us?

Most of you are awere of studies, papers or articles reflecting the position of the EU or the OECD on this matter. For the ones (like me) that are always interested on reflecting on different viewpoints, please read Richard Rahn's primer on the Tax Competition Battle. Here is a short abstract:

For the last decade, the high-tax countries of the European continent have been engaged in an aggressive and largely unknown war against low tax-rate countries around the world. This is not just a war of rhetoric, but one in which Continental governments are trying to destroy the economic livelihood and prospects of many smaller and poorer countries. The war has the goal of stemming the flow of savings and investment to low-tax entities from the high-tax countries.


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